With the growing adoption of cryptos globally, concerns arise bothering the blockchain trilemma – security, scalability, and decentralization. Ethereum has differentiated itself from other cryptocurrencies with its technology allowing the execution of smart contracts and building decentralized applications (dApps) with additional efforts of making its network scalable. Since its launch in 2015, Ethereum has secured its blockchain using the Proof-of-Work (PoW) consensus mechanism. This means all of Ethereum’s smart contracts, transaction records, and blockchain data continue to be protected by the proof-of-work consensus mechanism.
What is the Merge Upgrade?
The Merge simply represents the joining of Ethereum’s new Beacon Chain proof-of-stake consensus layer with its current execution layer (the Mainnet that we currently use). The Merge upgrade eliminates the need for energy-intensive mining by slashing the heavy computational power utilized while processing transactions on the Ethereum blockchain under the Proof-of-Work (PoW) consensus mechanism and further secures the network using staked ETH under the new proof-of-stake consensus mechanism.
Prior to the activation of the Merge upgrade, the Ethereum Mainnet runs parallel to the Beacon Chain. With the rollout of the Merge upgrade, the two networks will come together and operate as one.
The Merge upgrade will allow the Ethereum network to fully change its consensus mechanism from the Proof-of-Work consensus to the Proof-of-Stake (PoS) consensus.
The Merge consists of a sequence of two upgrades – Bellatrix on the Consensus Layer followed by Paris on the Execution Layer.
- Bellatrix upgrades the Beacon Chain to be “Merge aware”, embedding the Beacon Chain with the Merge logic as validators begin diligently monitoring the Proof-of-Work chain to initiate the Merge transition. Bellatrix was activated at Epoch 144896 estimated at 11:34:47am UTC on Sept 6, 2022.
- Paris Upgrade is the Merge transition itself, in which the Ethereum Mainnet hot-swaps its consensus from Proof-of-Work to the Beacon Chain’s Proof-of-Stake. The Paris upgrade activates at the chosen Terminal Total Difficulty (TTD) 58750000000000000000000
The Ethereum Merge upgrade is expected at approximately 15th September 2022 at Terminal Total Difficulty (TTD) 58750000000000000000000.
Post-merge, an Ethereum full node will be the combination of a consensus layer (CL) client which runs the proof-of-stake Beacon Chain, and an execution layer (EL) client which manages the user-state and runs the computations associated with transactions. The EL and CL client communicate over an authenticated port using a new set of JSON RPC methods called the Engine API. The EL and CL client authenticate each other using a JWT secret.
What is Changing with the Merge Upgrade?
- EIP 3675 – this EIP deprecates Proof-of-Work (PoW) and supersedes it with the new Proof-of-Stake consensus mechanism (PoS) driven by the Beacon chain. Information on the bootstrapping of the new consensus mechanism is documented in EIP-2982. The full specification of the beacon chain can be found in the consensus-specs repository.
- Ethereum’s Proof-of-work consensus mechanism will be changed to Proof-of-stake consensus. This will imply that blocks will be forged by nodes called validators with staked ETH (32 ETH is required to activate validator software). Under the proof-of-stake consensus mechanism, a node is randomly selected to validate a block and earn protocol rewards.
- Mining rewards will no longer be awarded under the PoS consensus. This is expected to significantly impact the issuance of ETH reducing annual issuance by 90%.
- Goerli and Sepolia testnets will be maintained post-merge. Ropsten, Rinkeby, and Kiln testnets will be deprecated after the transition to the proof-of-stake consensus mechanism.
What is expected of ETH users?
Whether you are using Ethereum applications on-chain, holding ETH on an exchange, or in a self-custodied wallet, No Action is required from ETH users prior to the Merge Upgrade. It is recommended that you do not send your ETH to anyone in an attempt to “upgrade to ETH2” as there is no ETH2 token. If an application, exchange, or wallet you use offers additional instructions or recommendations, verify these additional instructions or recommendations. Be on the lookout for scams!
All infrastructure providers, users, and community members are expected to upgrade to EL+CL Merge-ready nodes before the Merge upgrade.
Misconceptions about the Merge
- Running a node does not require staking 32 ETH: This is FALSE – Running a node does not require staking ETH. Anyone can sync their self-verified copy of Ethereum (i.e. run a node).
- The Merge will reduce gas fees: This is FALSE – The transition from proof-of-work to proof-of-stake consensus mechanism is not an expansion of network capacity hence does not result in lower gas fees.
- Transactions will be faster after the Merge: This is FALSE – transaction speed on Layer 1 is not expected to change significantly even though there might be some noticeable changes.
- You can withdraw staked ETH once the Merge occurs: This is FALSE – Withdrawal of staked ETH by validators is not yet enabled with the Merge Upgrade. Staked ETH withdrawal is anticipated to be enabled during the Shanghai upgrade.
- Validators will not receive any liquid ETH rewards till the Shanghai upgrade when withdrawals are enabled: This is FALSE – There are fee tips/MEV that will be created to a validator’s Mainnet account.
- When withdrawals are enabled, stakers will all exit at once: This is FALSE Validator exits are rate limited for security reasons. After the Shanghai upgrade enables withdrawals, all validators will be incentivized to withdraw their staking balance above 32 ETH, as these funds do not add to yield and are otherwise locked. An important caveat here, full validator exits are rate limited by the protocol, so only six validators may exit per epoch (every 6.4 minutes, so 1350 per day, or only ~43,200 ETH per day out of over 10 million ETH staked).
- Staking APR is expected to triple after The Merge: This is FALSE – The APR for stakers is expected to increase post-merge. More up-to-date estimations predict closer to a 50% increase in APR post-merge and not a 200% increase.
- The Merge will result in downtime of the chain: This is FALSE – The Merge upgrade is designed to transition to proof-of-stake with zero downtime.
For further inquiries regarding this upgrade, please email [email protected]
